Microsoft Likely to Leash iOS Office Apps to Office 365, Say Analysts

Microsoft will probably tie Office apps for the iPhone and iPad to its Office 365 "rental" subscription plans to prevent the mobile apps from cannibalizing sales and to skirt the "Apple tax," analysts said today.

Microsoft will probably tie Office apps for the iPhone and iPad to its Office 365 "rental" subscription plans to prevent the mobile apps from cannibalizing sales and to skirt the "Apple tax," analysts said today.

"I do see a definite linkage between iOS and Android apps, and Office 365, so that Microsoft can capitalize on mobile's move into the enterprise," said Daryl Ullman, co-founder and managing director of the Emerset Consulting Group, which specializes in helping companies negotiate software licensing deals. "They can't keep Android and iOS completely out."

Last week, speculation on Office apps for Google's Android and Apple's iOS hit a new high as The Verge, citing unnamed sources, reported that Microsoft will release iOS apps for Word, Excel and PowerPoint in late February or early March 2013, followed in May by similar software for Android.

The apps, collectively dubbed Office Mobile, will be offered free of charge on the iOS App Store and Google Play, the Android digital marketplace.

In their free versions, the apps will only let users view documents. To enable editing -- and presumably other functions, such as document creation and printing -- customers will have to chain the apps to an up-to-date Office 365 subscription.

There's precedent for this kind of linkage in Apple's App Store: Intuit, for example, offers free iOS and Android apps for its Quicken 2013 personal finance software, but those apps only work if tethered to a paid copy of the Windows program.

The benefit of such a tactic is that it allows developers to sidestep the 30% cut that Apple takes of all app revenue, something Microsoft would probably prefer to avoid.

The tying of the apps to Office 365 has been brought up previously by analysts. Last month, Wes Miller of Directions on Microsoft argued that an app-to-Office-365 link was one of several ways Microsoft could distribute Office to rivals' phone and tablet hardware.

"I haven't changed my theological viewpoint," Miller said in an email Friday. "Microsoft will not be giving away the whole product, that's a given."

Miller continues to believe that an Office 365 tie-in is but one option Microsoft has available to offer iOS and Android apps without hurting its Office cash cow. "[There will be] some form of compensation, whether it requires in-app purchase, as OneNote currently does for higher-use customers; subscription to a service, and some strange unlocking in the product as a result; or an outright purchase of the apps in the store," Miller said.

For consumers, Office 365 will be the only way to obtain working apps for their iOS or Android devices, said Ullman. "It will drive consumer usage of Office 365," he said. "Microsoft's logic behind that is it will be a strong way to move people to the subscription model."

Microsoft is betting big on Office 365, which for the first time will feature plans aimed at consumers and small businesses that let them install copies of the suite on their computers and other devices, not simply run scaled-down Web-based apps. Office 365 Home Premium and Office 365 Small Business Premium are, experts have argued, key to Microsoft's goal of motivating customers to ditch perpetually-licensed software for a pay-forever model that will both boost and stabilize the company's Office revenue by untethering it from the every-few-years upgrade cadence.

Office 365 Home Premium will let a household run Office on up to five devices, which Microsoft has defined as traditional desktops and notebooks -- Windows or OS X systems -- as well as tablets and smartphones. Office 365 Small Business Premium, meanwhile, will work like the current enterprise plans, allowing each worker to run Office on up to five of his or her devices.

The price: $100 annually per household for Home Premium, $150 annually per user for Small Business Premium.

By tying Office Mobile for iOS and Android to Office 365, Microsoft both makes the subscription plans more economical and creates a carrot to convince consumers and small businesses to follow in the footsteps of enterprises, which typically pay for software through annuity-style licensing deals like Software Assurance.

Sans Office on iOS and Android, Office 365 may not make financial sense for most households or small businesses: Computerworld's calculations show that a household or business worker must use four or five of the allowed copies to bring the per-year, per-license cost of Office 365 below that of the same number of perpetual licenses.

Last month, one analyst called that "iffy, very iffy," even in a technology-oriented household or business.

But by adding iOS and Android, Microsoft would make it much more likely that Office 365 customers could, in fact, equip more than three devices with the suite. Those two operating systems own the lion's share of the smartphone and tablet markets. Because Windows-based devices have minuscule market shares, the inclusion of iOS and Android could also help Office 365 gain traction until Windows RT and Windows Phone 8 grow their shares.

And if Office Mobile does require Office 365 -- if the apps aren't available for purchase separately -- Microsoft creates a huge incentive for users to subscribe, not only boosting sales but also attracting customers who otherwise might never have considered the rental model or even the new Office.

Ullman was optimistic that consumers would, if not in the short term, then in the long, shift to the Office 365 model.

"It's how consumers are consuming software now," he argued. "They're used to paying a subscription license, especially younger consumers, and they're moving away from paying up front for a perpetual license. They're using software, and if it doesn't work for them, they move to something new. I see [Office 365] as Microsoft's way of being part of this."

Ullman was adamant that the rental model was attractive to younger users. "The whole concept of upgrading is foreign to them," said Ullman. "Younger users don't even know what an upgrade is, since most of their software is updated all the time."

Consumers are, however, a small part of Microsoft's Office business, which last quarter brought in over $5 billion in revenue, or more than 34% of the company's total for the period. Microsoft makes most of that not from sales of Office to consumers, but on sales and volume licensing contracts to enterprises.

Linking iOS and Android Office apps to Office 365 also is a smart move for Microsoft in the enterprise, Ullman said, what with businesses shifting to a "bring-your-own-device" (BYOD) concept, where employees decide what hardware they'll use for work.

"Companies are adapting to younger workers -- as well as those in the C-level suites -- coming into the workforce with their own devices," Ullman said. "And Microsoft must adapt their licensing to that."

As Ullman sees it, Microsoft has two options with iOS and Android Office apps. It can either link the apps with Office 365, or add "usage rights" to the mobile software as part of Software Assurance.

The former would "push Office 365 into the enterprise as a licensing solution," said Ullman, while the latter would "be a way of keeping customers on Software Assurance."

Either would be what he called a "smart move," but Ullman wasn't ready to bet on one over the other. "I'm not sure which way they'll go," he said.

Microsoft will introduce iOS and Android apps for Office; that's virtually a given, what with its previous comments that Office will work across multiple mobile platforms, including its own Windows Phone 8, as well as iOS and Android. Most have interpreted that to mean native apps on its rivals' operating systems, not the Web-based apps now available.

"This is a logical move," said Ullman. "They see how the currents are moving [toward mobile], and they're trying to regain the trust and enthusiasm of users, especially of the younger generation of users. Microsoft sees the BYOD movement, too, and what they're doing behind the scenes is to capture additional revenue from that."

But while he's certain Microsoft would hitch iOS and Android Office apps in some way to money-making licensing deals, Ullman had no idea when or in what fashion. "When it's going to happen, or how, that's just speculation at this point," he said.

Microsoft has released Office 2013 to volume licensing customers, but it has not disclosed a retail release date. Most expect that to occur in late January or early February 2013, when the company will also probably roll out its new Office 365 plans.

Miller, of Directions on Microsoft, said it was possible Microsoft will reveal more of its Office plans this week at its SharePoint Conference, which starts today in Las Vegas and runs through Thursday.